Every morning when i pickup my favourite Economic Times. The idea is to rush ASAP to 4-5 Page where the cover news from IT and emerging technologies sector. Generally the space is taken by info on M & A deals or some big india fund being raised. We all get the picture as an entreprenuer that their is lot of money available in market. But i have been asked so many times via email courtsey people remembering me via different comments i leave on important venture capital blogs.
How do we get funded ?
Now i wish it was so simple that i put it in an email and send it across as a primer for guaranteed success. Though one thing is important one need to give a full attempt before saying “everything about money being available is bullshit!”. See in india we have always been taught on ways to mitigate risk from childhood. Example
1) Taking Science in High School as compared to Arts or Commerce
2) emphasize on doing Masters as soon as one complete bachelors.
3) Finding a job with bluechip organization rather than dirting hards with a startup and so forth.
Even when someone takes a bold step to become entreprenuer still people try to mitigate risk to avoid failure and generally these steps to mitigation generally becomes ones biggest enemy to success. I will give some examples of people around me. Genius minds with great visions but got stick in the vicious cycle of “Avoiding failure instead of chasing success”
# Couple of great progammers decided to write a control panel for remote windows 2000 server management. Better than Plesk etc. From the day they started they were in pressure to go cash flow positive. Now they had all quit their day jobs and were writting the code. The team made some assumptions
– It will take them atleast 8 months to beta
– Another 2 months to get first customer
Based on these assumptions they took out money for 12 months to survive from their savings.Well their assumptions were half correct. They did take almost 8 months to program the control panel but they were not aware of following problems they were to face
– admin issues (paying bills on time etc)
-Rather than starting their operations in plush IT Parks because of higher rental and operation cost. They took up a basment on rent in an quite residential area. Which according to them was near to their homes and also quiet as compared to india’s busy commerical areas. When summers came their UPS could not sustain continous 3 days power cut. When monsoons came as swerage line behind their office was not clean their office got flooded.
So while always 1 person was busy handling the admin process things got delayed by another 45 days which they didnt mind. Once the software was ready to started reaching out to customers it was already 11 month in running. These people decided with their test servers available and increasing cost to run operations on daily basis. Why dont they start providing shared hosting and web programming services. The begining was great as they were able to sell 1 GB of web space in a month. But the actual return was 1 Lakh rupees. Now 40% of organizational resources was already stuck with managing existing customers and another 40% was busy in acquiring more customers to recover cost of involvment of existing 40 % resources.
Bottom line they were cash flow postive according to their milestones and according to themselves they did a healthy turnover of around 25 Lakh rupees. 3 years down the line they realized even after becoming 75 lakh networth organization.
# Lost the real vision and objective they set out to achieve
# Bigger money they could have made if they would have stuck with their choice for little longer.
Moral of story ” Dont built it if you can’t sell it”
Same goes for venture capital if you have a really good software which can sell 1000 copies every month and has capacity to make you next microsoft. Prove them you can sell. As in so many business plans entreprenuers sit down and tell about the next big software which will be build in india and sold in US. No one talks how it will be sold who will be hired for the market. Has he sold something this size before etc etc. They expect venture capitailist to envision all of this and just throw some money at them to mitigate the risk for creating a project which you thought would be the next big thing.
If you are starting up in india dont target US market. If your product target is US then you should have your startup based in US with management team evenly distributed between india and US . So that india operation is only used as engineering base rather than marketing point. This is advantageous as US based VC would not be interested to invest in management team in india and a VC in india promising access to contacts in US while being based here in india is equally bad.